How Do You Calculate Basic and DA? Seeking Clear Rules from Experienced Professionals

Dear Seniors, could you please provide me with the exact rule for calculating the Basic and DA? If there is a specific rule, it would greatly assist me if you could post it. I am eagerly awaiting your favorable reply.

Thank you.

I am in an IT company. We calculate it like this: if the salary is 10,000/-, the basic will be 10,000/2 = 5,000, and HRA will be 5,000/2 = 2,500/-.

Thanks,

Riddhi

Salary Structure in Organizations

In most organizations, the basic salary is typically 40% of the gross salary. The House Rent Allowance (HRA) should be 40% of the basic salary, with Leave Travel Allowance (LTA) set at 10% of the basic salary.

Formula for Calculating Gross Salary

The formula for calculating the gross salary is as follows:
Basic Salary + HRA + Conveyance + Special Allowance + LTA + Provident Fund (PF) = Gross Salary

Best regards,
Bismay

Dear Akila Shiva,

Understanding Dearness Allowance (DA)

Dearness Allowance (DA) is generally applicable in Government and Public Sectors. Which private organization gives you an allowance every month because the prices of goods and commodities have gone up?

Where Dearness Allowance is applicable, you do not need to reinvent it. There are systems well laid out to apply the price fluctuation in a basket of commodities (reflected by AICPI) and apportion it over a range of pay scales in several employment sectors such as Government, Industrial, banking, railways, etc. This ensures that every three months, an ordinary employee receives an amount of Dearness Allowance that approximates the changes in the actual prices of consumer goods.

There are several indexes and neutralization schemes involved that are beyond the scope of this thread. You should join a workshop conducted by the Government/PSUs, etc., on the subject.

Warm regards.

Calculation of Basic Salary for PF Purposes

Regarding skilled and semi-skilled workers, what is the rule to calculate the basic salary for PF purposes? Is the minimum salary considered the basic salary?

Dear Akhila & Riya,

Information on All India Consumer Price Index and Industrial DA

Considering the cost of living and other factors, Wage Revision is typically done every five or ten years. However, with inflation rising daily and the value of money subsequently decreasing, waiting until the next Wage Revision is not practical. This is why Dearness Allowance (DA) is introduced.

The devaluation of money can be assessed through the Wholesale Price Index, All India Consumer Price Index, etc. The key difference between these indices is that the Wholesale Price Index considers the price variation of all commodities.

Differences and Limitations of All India Consumer Price Index

1. It focuses on a specific consumer group, namely Industrial Workers.
2. It defines a set of specified goods and services known as the "basket of goods."
3. It considers not only the price variation of commodities but also their consumable quantity.
4. A total of 78 centers are selected nationwide to calculate the average.

Based on the All India Consumer Price Index, Industrial DA is paid variably in quarters starting from January, April, July, and October. For example, the AICPI for January is the average of the previous September, October, and November figures. Similarly, for April, it is the average of December, January, and February, for July it is March, April, and May, and for October it is June, July, and August respectively.

When the devaluation of money is fully compensated, it is referred to as full DA neutralization. The formula for full DA neutralization is calculated as (Total points - Base points) / Base points (in percentage). The AICPI was introduced in India in 1960 and revised in 1982 and 2001. By multiplying the AICPI of 2001 by 4.63, we get the AICPI of 1982, and by multiplying the AICPI of 1982 by 4.93, we get the AICPI of 1960. The AICPI of 1960 is accepted as the base for DA calculation.

In India, there are primarily two wage settlements in existence: the Wage Settlements of 1.1.1997 and 1.1.2007. The base points are 1708 for 1.1.1997 and 2884 for 1.1.2007.

I will provide an example calculation for AICPI for July '10: The average of the previous March, April, and May figures is taken as 170, 170, and 172 (base year 2001). After applying the relevant multipliers and rounding, we arrive at the AICPI figures for the base years 1982 and 1960, followed by the final average calculation.

For the 1.1.97 scale, the DA calculation is based on the total points minus the base points, resulting in a percentage. Similarly, for the 1.1.2007 scale, the calculation is done based on the respective points.

I will insert an Excel sheet for IDA calculation effective from 1.10.2008. Feel free to extend the rows as necessary and enter the three indexes towards the year 2001 in the green columns. The results will be displayed in yellow, while red is used for static information.

Regards,

ABBAS.P.S,
Secretary,
ITI Employees' Association,
ITI Limited, PALAKKAD - 678 623,
KERALA, INDIA.
[Phone Number Removed For Privacy Reasons]

The AICPI (base 2001) can be accessed from the following site: http://labourbureau.nic.in/indexes.htm